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Sunday, November 15, 2009

China, the world leader in both economic growth and carbon emissions, faces the dilemma of how to respond to the challenges of global warming while not harming its robust economy.

Beijing

China awoke to climate change with a storm. It was late January 2008, a time when people across the country were busily gathering recipes, stocking fireworks, and preparing to welcome relatives to celebrate the Lunar New Year. But suddenly, severe ice storms brought much of the nation to a standstill. For two weeks, fierce winds, sleet, and snow downed power lines, shuttered businesses, and razed more than 200,000 homes across southern and central China.

Hundreds of thousands of travelers who had been headed home to see families were stranded on icy rail platforms. Cities struggled to provide power and water to residents, and snow blanketed the Taklamakan desert. Even the bright lights of Shanghai briefly went dark. All told, more than 100 people were killed.

China’s worst storm in decades was, according to United Nations scientists, an illustration of what a changing climate may herald for the future. As such, it was a tipping point in the country’s environmental awareness.

“For the ordinary people,” says Hu Kanping, editor of the Environmental Protection Journal, “it was a historical moment for them to know what is climate change.”

In an editorial comparing the storm to Hurricane Katrina, the influential Chinese business magazine Caijing wrote: “This painful experience ought to set us thinking about how we can better pay Nature the respect she deserves and should make us listen more attentively to what science tells us about how climate change leads to natural disaster.”

The storm was also a moment for China’s leaders to consider the consequences of the extraordinary growth of the country’s economy, which has expanded by 9.7 percent annually over the past 30 years.

Now the world’s top global exporter of manufactured goods, China is also the world’s largest importer of tropical woods and its largest producer of cement, feeding a breakneck pace of construction. Every year, 8.5 million farmers leave their villages for fast-growing cities. The McKinsey Global Institute forecasts that by 2030, China will have 1 billion urban residents.

Although the benefits of China’s economic expansion have been immense — lifting a staggering 630 million people out of poverty — so, too, has been the environmental impact. In 2006, Forbes magazine found that all 10 of the world’s most polluted cities were in China. The water in about half of China’s major waterways is unfit for drinking or even agriculture.

Even as China has invested heavily in alternative energy systems, its primary source of fuel is still overwhelmingly coal. The World Bank estimates [pdf] that China’s polluted water and air result in about 750,000 premature deaths each year.

Because of the country’s size and influence, China’s environmental concerns are no longer simply its own. China has overtaken the United States as the world’s top emitter of greenhouse gases that lead to global warming. In 2006, China emitted approximately 6 billion metric tons of carbon dioxide, approximately one-fifth of the world’s total.

And while China’s per capita emissions are currently very low (about one-fifth that of the US), they are expected to rise significantly as an estimated 350 million people move from the countryside to the cities over the next 20 years. The Chinese Academy of Sciences predicts that during that time, the country’s CO2 emissions may double or more unless dramatic measures are taken.

Who should pay?

Faced with such prospects — as well as a glaring international spotlight before the Copenhagen climate conference in December — the Chinese government has in recent months devoted both more rhetoric and real attention to the challenges of combating climate change.

While Beijing hopes for a global reputation boost by highlighting some green measures already undertaken, the scope of its international commitments will be motivated chiefly by domestic concerns — by the tug-of-war between political priorities and interests, a struggle often overlooked by those who see China only as an efficient top-down monolith.

As in the United States and elsewhere, business interests vie for influence, but the dynamics of the conversation are particular to China, where industry is composed of a unique mix of state-owned enterprises, foreign joint-ventures, and private companies, all with different priorities and levers for reaching government officials.

Unlike in the United States and Western Europe, where arguments between activists and climate skeptics have long defined climate discussions, there has never been much public dispute about the merits of global warming science in China.

The official 2008 government white paper, China’s Policies and Actions for Addressing Climate Change, states without reservation: “The rise of global average temperatures since the mid-20th century is mainly caused by the increasing atmospheric concentrations of greenhouse gases, chiefly consisting of carbon dioxide, methane, and nitrous oxide, emitted as a result of human activities, such as the burning of fossil fuels and changes of land use.”

Rather, the debate over climate change in China has been focused on who should take responsibility for it and who should pay for the measures to remedy it. Looming over all is the question of to what extent measures to curb CO2 emissions and the use of coal could impede the country’s economic growth — impediments Beijing has indicated it will not accept.

The Chinese government insists that Western countries, which have contributed the bulk of cumulative carbon emissions over time, bear the primary responsibility.

As Xie Zhenhua, vice minister of China’s top economic ministry told an audience of top legislators in Beijing in August: “Developed and developing countries are still the two major factions, and the focus of disagreement remains on each country’s proportion of responsibility for emission reduction, funding, and technology transfer.”

Ambitious green targets

Beijing has so far resisted the notion of internationally binding carbon caps, such as those that may be discussed at Copenhagen. But China does have in place two ambitious green targets, as part of its current Five-Year Plan, which would curb (though not forestall) future growth in carbon emissions.

The first goal is for China to derive at least 15 percent of all its energy from renewable sources by 2020. (The government since has talked of a more informal target of 20 percent.) The second is to reduce energy intensity per unit of GDP by 20 percent over a five-year period.

Experts have been impressed with China’s green ambitions. Julian L. Wong, a senior policy analyst at the Center for American Progress in Washington, D.C., notes that China’s installed wind power has doubled in each of the past four years.

John Doerr, a prominent American venture capitalist, and Jeff Immelt, the CEO of General Electric, enthused in a recent Washington Post column: “China’s commitment to developing clean energy technologies and markets is breathtaking.”

New York Times columnist Thomas Friedman has compared China’s clean energy investments to a “new Sputnik.”

Yet even as it pursues alternative energy, China will likely continue to be one of the world’s leading polluters. Carbon-intensive coal, which is abundant and easily mined with cheap labor in China, is expected to supply about 70 percent of the country’s energy over the next 10 years.

China’s energy demand is projected to rise so steeply in coming decades that Beijing is expected to continue to build wind-farms, hydropower stations, and nuclear facilities alongside new coal-fired power plants, all in staggering numbers.

Climate change has only relatively recently emerged as a focus of government and public attention in China. Within China, local environmental problems — such as toxic factory accidents and rising cases of cancers along polluted rivers — frequently make newspaper headlines. Until the 2008 storms, though, climate change seemed a more distant and abstract concern.

As Wen Bo, a prominent environmentalist in Beijing explains: “In China, you must remember there are so many very immediate problems — environmental health, air pollution, and water quality.”

Informal consulting, not lobbying

The government issued its first white paper on the potential impacts of climate change in 2007, concluding that China’s vulnerability to rising sea levels and desertification was among the most severe worldwide. That finding galvanized further attention and also signaled the boundaries of acceptable public discourse — always a concern in a country with tight controls on public expression.

The following year there began to be more frequent mentions of climate change in Chinese newspapers and at academic conferences, accelerating after the 2008 storms.

China today remains a nation ruled by an authoritarian one-party government. Thus, as with all matters deemed essential to the national interest, it is the country’s top leadership that drives the national debate on climate change.

Going into the Copenhagen talks — which some say present China with an opportunity to improve its image in the international arena — China’s negotiating position will be determined by a special inter-departmental climate committee chaired by Premier Wen Jiabao. Several ministries will be represented, most significantly the National Development and Reform Commission, China’s key economic ministry.

While there is no formal and open process for lobbying the government in China — and no equivalent of Washington’s “K Street” — there are opportunities for businesses and other interested parties to make their voices heard.

Most ministries consult informally with industry heads and, in some cases, with trusted academics and, very occasionally, heads of non-governmental organizations. That process has applied to the writing of recent regulations relevant to China’s carbon footprint, including vehicle efficiency standards, a recent fuel tax hike, and discussions now underway in Beijing about including “carbon intensity” targets in the next Five-Year Plan.

With many of its environmental proposals, the central government has faced industry reluctance. Take the national alternative energy targets. Beijing has assigned each of China’s top-10 power companies — state-owned enterprises that together account for 60 percent of China’s electricity and are a significant source of carbon emissions — a goal of generating three percent of electricity from renewable sources by 2010.

But, according to calculations by Greenpeace China, based on data supplied by the companies themselves, only one appears to be on track to meet those targets.

At the root of the problem is simple economics. Coal remains the cheapest source of power generation, which hampers the implementation of China’s renewable energy law.

Says Yang Ailun, climate and energy campaign manager for Greenpeace China: “The [power] companies earn more money with coal. Our argument is that the price of coal in China is too cheap. It’s plentiful and easy to mine, but the current coal price doesn’t reflect the serious environmental or health side-effects.” (Greenpeace estimates that these “external costs” of coal burning amount to seven percent of China’s GDP.)

The price of power

Barbara Finamore, founder and director of the Natural Resources Defense Council’s China Program, offers a similar perspective: “Right now renewable energy is a lot more expensive in China. The renewable energy law requires that utilities obtain a certain percentage from alternative energy sources, but they must do so at above market rate. The fact of matter is that it [the law] is not being well-implemented.”

Ms. Finamore suggests that raising coal prices could help “level the playing field.” Some groups, including Greenpeace China, call for a tax on carbon to account for the external costs that are not reflected in the current market price. But while the proposal has been around for decades, it has consistently stalled.

Among the prominent opponents of a coal tax or other price hike are the CEOs of the top 10 power companies. “Power system reform is an ongoing process. There’s no need for anyone to get overexcited,” Lu Qizhou, president of China Power Investment Corporation told the Chinese newspaper Southern Weekly. “Of course the government will make sure that the pace of reform is in line with economic development and the market’s ability to cope.”

Because China Power is state-owned, Lu speaks as both an industry head and a de facto part of government. As with the CEOs of all major state-owned enterprises, he was appointed by the leadership in Beijing. Previously, he served as deputy CEO of China’s State Grid Corporation and then as China Power’s Communist Party secretary.

In China, both the power sector and the oil sector — each critical to climate and energy policy — are dominated by a handful of large state-owned enterprises. And, in one sense, that obviates the need for lobbyists.

“There is a permanent revolving door between the Party and government and the SOEs [state-owned enterprises],” says Beijing-based political commentator Zhao Jing, who writes in the English-language press under the name of Michael Anti. “There don’t need to be ‘lobbyists,’ when discussions can happen directly through the Party.”

This interwoven network does not mean everyone always shares the same immediate goal. For instance, the power company CEOs would like to see the central government increase the price of electricity, which is currently fixed, while Beijing worries that raising prices that impact poor farmers could lead to social unrest.

However, the cozy political arrangement does mean that power companies are involved in reviewing draft regulations that would impact their sector, and they can exercise something close to veto power.

“The bosses of the big five power companies, they have official ranking — almost minister level,” says Greenpeace China’s Yang. “As an official of the system, they are not even made accountable to the energy bureau in the National Development and Reform Commission, which is ranked lower.”

Fueling the future

In another sector critical to climate outcomes — transportation — the industry profile is quite different. Now the world’s top auto market, China has an estimated 65 million vehicles on the road, and experts predict [pdf] it will have 300 million by 2030.

But unlike the power sector, the transportation industry is not dominated by state-owned enterprises. Rather, it is characterized by joint ventures between Chinese firms and prominent US, European, Japanese, and Korean automakers, including General Motors and BMW.

Representatives from these companies are often asked for their input on draft regulations. For example, a transportation research group which develops energy and environmental policies for the Chinese government in 2008 invited comment from several foreign and domestic firms as it considered future fuel efficiency recommendations.

According to a state employee present at one of those meetings, one American company used the opportunity to oppose stricter fuel economy standards. (China’s current fuel economy standards are not as stringent as those in the European Union or Japan, but are tougher than those in Australia, Canada, and the United States.).

On the other hand, the employee said he believed that foreign companies had played a progressive role in helping China adopt relatively stringent tailpipe emissions standards. Most international automakers are already producing vehicles with very low tailpipe emissions for markets like California, which has among the strictest emission standards in the world. Because the technologies are already developed, these automakers can introduce them into the Chinese market relatively quickly and easily through joint ventures with domestic Chinese companies.

“If you would like to be part of it [input on regulations and green energy], you can be,” says Norbert Reithofer, chairman and CEO of BMW Group, which operates a joint venture with the Chinese automotive firm Brilliance. “China is very open. But it is up to you … If you have the right technology, you will find a partner.”

As for China’s historic system of state-owned enterprises, it is in many ways useful for mobilizing industry around national goals. But it also presents certain contradictions, because it enshrines established interests.

For China, envisioning the future and building from scratch — from new wind farms to megacities to future green industries — is always easier than retrofitting its past. Yet to solve its looming environmental challenges, which are now no longer its own, will require China’s leadership to find a way to do both.